Getridofthemnow

Seeking the Fix That Will Finally Work

Occdude - you are right on mark. The issue is loss recognition, insolvency, and bank failure. You can put all the scaffolding you wish underneath the bad eggs, but they are still bad eggs. You cannot "liquify" yourself out of an insolvency. What we are doing as a nation is no different than a personal balance sheet as follows:

Total Assets = $100 (but recorded at $130 using "GAAP" and "held to maturity" pricing)

Total Liabilities = $115

Net Worth = ($15)

Ben Bernanke, who should be and likely will be fired before long (if Congress and/or next President finally wakes up), along with Daddy Warbucks (ooops...I mean Hank Paulson), told Congress and the world that to correct this negative net worth situation, we merely need to increase the limit on the poor saps credit card.

Ben: Here Mr. Banker. I know you are insolvent, but please take this money and grant more loans.

Banker: But Ben, I need to reduce my liabilities and find some way to recapitalize.

Ben: No...no. Just use the cash. Make loans. The market won't know you are insolvent because you don't have to mark anything to market. We will worry about capital later. This is a liquidity crisis, not a solvency crisis.

Banker: Ben, with all due respect, I don't think you learned much up there at Princeton. The reason my depositors are leaving, wholesale and large uninsured CD, is they have kind of figured out my assets aren't worth $130. They are a bit freaked about that. If I solve the capital issue and recognize the losses - that is "repair" the REAL hole in my balance sheet - they won't leave.

Ben: Don't worry. We will insure ALL depositors.

Banker: Ben...that doesn't solve the hole in my balance sheet.

Ben: Don't worry. Be happy. Trust me...I've studied these things.

Banker: And was it a water bong or a pipe you were smoking during those studies?